Friday, February 26, 2010

April Fool's Joke

One of the main highlights of today's budget speech delivered by our very own Honorable Finance Minister (as is done every year, irrespective of the political party in power) was the announcement of tax sops for individuals in form of bigger slabs and consequent lower taxation. This single event would have lifted the spirits of all, me included. I even started to calculate the savings and new expenses that I could make out of the saved taxed. Leading websites claimed it as power to the aam aadmi. People in my office and nearby were in joyous discussions about the amount they would save and where they would spend it. So much joy around and from someone who is as unrelated to you as the ruler of a foreign country set my skeptical nerves in action. What's wrong ? And that is when I realized this: We are being returned a fraction of the money that is taken from us by the way of inflation. Somebody realized that too much would expose their modus operandi. Here's how.

Let's take the example of a salaried person, who has say an annual package of Rs 6Lakhs (Cost-To-Company). Going by accepted norms of salary structure in the IT industry, that person would be taking home somewhere close to Rs. 4 Lakhs in net taxable income after deductions. According to existing tax slabs for 2009-2010 (Assessment Year 2010-2011), the income tax amount for this is Rs. 34,000 (10% * Rs 1,40,000 + 20 * Rs 1,00,000). Since the basic tax free slabs have not been raised, we can safely assume that the net taxable income for the same salary would remain same in the forthcoming year also. So given the new tax slabs the income tax for the same taxable income is Rs. 24,000 (10% * Rs 2,40,000). So a savings of Rs 10,000 per year. Awesome figure you would agree !

Now comes the interesting part. As any mildly conscious person would know if there is one thing that kills all your hopes and dreams it is Inflation. Did you ever realize that that is also a tax that the governments put on your earnings (besides multiple other excise, octroi, services, sales, VAT, GST, etc. etc) ? Let's consider the inflation numbers as given to us by the moneylender of last resort - 7% (although I have full faith that you as a conscious breathing eating living human being know that the actual number is more than that). So if we are to beat inflation we must earn at the least 7% more next year, right ? Which translates to Rs. 42,000 (7% * Rs 6,00,000). Compare that to the Rs. 10,000 savings you got out of your tax sops.So just by inflation our governments take away our money from us.

Given the recent high inflation across all countries, somebody clever realized that too much of it might invite too many uncomfortable questions. So lets give these fools something to cheer about. So they gave you Rs. 10,000 back. And you know which date this new round begins - April 1, 2010. Enjoy!